The U.S. Securities and Exchange Commission (SEC) has withdrawn its appeal against a court ruling that blocked a proposed regulatory change aimed at decentralized finance (DeFi) protocols.
On February 19, the SEC submitted a request to dismiss the appeal, which was unopposed voluntarily. This decision concludes the agency’s legal efforts to broaden the definition of a broker-dealer, a move that faced significant opposition from crypto advocacy groups.
A lawsuit was filed in April by the Blockchain Association and the Crypto Freedom Alliance of Texas against the SEC’s proposal. The SEC aimed to classify crypto liquidity providers and automated market makers with over $50 million in capital as dealers, requiring them to register and adhere to regulatory obligations, including Know Your Customer (KYC) and Anti-Money Laundering (AML) rules.
Critics believe the SEC’s rule is impractical for DeFi protocols due to their decentralized nature, complicating compliance efforts. In November, Judge Reed O’Connor of a Texas District Court ruled in favour of the crypto industry, declaring that the SEC overstepped its authority with an overly broad definition of a dealer.
The SEC appealed a ruling in January, just before former Chair Gary Gensler left the position. With new leadership and a shift in regulatory stance under President Trump’s administration, the SEC has decided to drop the appeal, indicating a less aggressive approach to crypto enforcement.
“Complete and total victory today in our case against the SEC over the dealer rule,” Blockchain Association CEO Kristin Smith declared in an X post. “The crypto industry can breathe a sigh of relief.”
Simultaneously, the U.S. SEC is working on a transparent regulatory framework for digital assets. On January 21, Acting Chairman Mark T. Uyeda announced a new crypto task force to tackle digital asset regulation. Commissioner Hester Peirce will lead the initiative, with Richard Gabbert as Chief of Staff and Taylor Asher as Chief Policy Advisor.
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